4) Suppose there are two firms that compete in prices, say firms 1 and 2, but that thefirms produce differentiated products. Suppose that the demand for firm 1 is9₁(P₁, P2) = 10 - 2p₁ + P₂ and the demand for firm 2 is q2 (P2, P₁) = 10 - 2p₂ + P₁.Also, assume that firm 1 has a constant marginal cost of c₁ = 2 and firm 2 has a constantmarginal cost of c₂ = 3.a) What are the reaction functions for both firms?Solve for the Bertrand equilibrium in prices.b)c) Now, suppose firms 1 and 2 agree to merge. However, under the merger onlyfirm 1 will operate and firms 1 and 2 will split the resulting profits equally. Willboth firms agree to such a plan or do they prefer the Bertrand outcome?

Given information q1=10-2P1+P2 q2=10-2P2+p1 MC1=2 MC2=3

Answered: 4) Suppose there are two firms that…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Suppose that the market demand curve for bean sprouts is given by P = 1,680 - 2Q, where P is the price and Q is total industry output. Suppose that the industry has two firms, a Stackelberg leader and a follower. Each firm has a constant marginal cost of $80 per unit of output. In equilibrium, total output by the two firms will be?
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